An Individual Voluntary Arrangement (IVA) is a flexible debt solution that generally lasts for five or six years. At the outset, a licensed insolvency practitioner (IP) assesses your income and essential living expenses, and negotiates an affordable sum to repay creditors based on your financial position at the time.
During the IVA term, however, it is possible that your situation could change. If after reassessment by the IP your financial position has improved, the terms of your IVA could also change and you may be expected to increase your payments to creditors.
Increasing IVA payments following a change in circumstances
Although the IP assesses your repayments on an annual basis as a matter of course, it is important to advise them immediately of any changes to your financial status. Failing to do so could be regarded as a breach of the IVA terms, and result in its failure.
The insolvency practitioner will decide whether or not an increase in your repayment amount is required, after re-evaluating your situation – changes could be the result of a new job, for example, a wage increase or windfall lump sum/inheritance.
If you have received a relatively small wage increase, the IP may feel that ongoing increases in the cost of living are likely to limit any financial benefit to you, and take no action. Should your pay increase be larger, however, and your living costs do not increase to the same degree, your IVA payments may be amended to reflect this – usually involving a rise of 50% of the extra pay.
Commission, bonuses and overtime
If you receive commission or bonuses, you should inform your insolvency practitioner within 14 days. If the increase from commission and bonuses represents 10% or more of your basic salary, you are generally required to pay 50% of the additional monies to your creditors.
Overtime payments are not usually guaranteed, and may not have been factored into the original IVA terms. The same principle applies in this instance – of informing your IP should you receive additional money from working overtime.
Your IVA may include what is known as a ‘windfall clause.’ This means you must pay over lottery wins, inheritances, gifts, or other forms of windfall payment to the IVA. You should check the formal agreement to find out your particular obligations in this respect.
The IVA supervisor will always ensure your essential living costs are covered before calculating any amended repayments, and is able to reduce repayments if your financial situation declines again.
One of the benefits of paying more money into your IVA, however, is that you will be free of debt sooner. Depending on the amount, it could help you avoid having to take equity out of your property in year five, which is often a requirement in an IVA.
Written by Lawrence O’Hara; Head Advisor at Northern Ireland Debt Solutions part of Begbies Traynor Group plc. Lawrence has experience in debt problems, cash flow management and insolvency.